The Bradford-based retailer, which manufactures around a quarter of its in-store products, could end up looking “significantly undervalued” if the management team is unable to “weaponise” its vertically-integrated model, according to Mike Dennis, md for consumer research at Cantor Fitzgerald.
Speaking exclusively to FoodManufacture.co.uk, he said: “If the economics in manufacturing its own produce doesn’t reflect in a lower cost of goods – in order to out-compete bigger rivals Tesco and Asda – then why not sell up and take a profit?”
The development comes following the news that Morrisons will leave the FTSE 100 on December 21, ending a 14-year run in the stock market’s index of largest companies.
Its share value, which has fallen by half since September 2013, is currently 151.40p.
Dennis estimated around 47M shares – the equivalent of £70M – would be traded in the weeks following Morrisons leaving the index because investors will not want the company in their tracking funds.
He said that, given that manufacturers’ operating margins were four times that of retailers, the value of Morrisons’ manufacturing assets to a mid-size manufacturer was “possibly worth a lot more” than Morrisons actually owning them.
“They could then secure long-term contracts back off the manufacturer that buys it, on a renewable basis,” Dennis said.
“For example, they can buy half their supply of apples from the apple business that they’ve sold, and then get the rest from the wider market, including overseas.
“Ultimately, Morrisons will make a better margin doing that,” Dennis added.
Earlier this year, Julian Wild, head of the food team at Rollits solicitors, advised Morrisons md David Potts to sell the company’s manufacturing facilities and focus on food and drink retail only.
It led to members of the public ‘warning’ the retailer via Twitter, Facebook and LinkedIn that the vertical-integration model was vital for the future success of the business.
Last month, Morrisons posted a like-for-like third-quarter sales fall of 2.6%, which it blamed partly on a reduction in promotional vouchers.
Morrisons declined to comment on its departure from the FTSE 100.